KGN Financial eyes merger

Accountant hooking up with Madison's Virchow Krause

Chicago-based accounting firm KGN Financial Group said Thursday it would merge with a Madison, Wis., firm ranked as the accounting industry's 13th largest.

KGN Managing Member Stephen Levin said the deal with Virchow Krause & Co., scheduled to close June 28, would help the combined firm capture more auditing business here in the wake of Andersen's demise.

"We're not in the running for a lot of clients," he says. "There's a huge volume in Chicago."

Adds Virchow Krause CEO Tim Christen: "We think there is a tremendous opportunity to cover 'orphan' public companies," as the Big Four accounting firms concentrate on bigger clients. "That leaves a lot of nice $100-million companies having difficulty finding service providers."

KGN's revenues grew 5% last year, to $11 million. With 90 professionals, it was ranked 18th on Crain's list of Chicago's largest accounting firms for 2003. The firm specializes in manufacturing, distribution, real estate, not-for-profit and government clients, it says.

Industry consultant Allan Koltin, president and CEO of Chicago-based PDI Global Inc., advised KGN. He predicts its revenue base will promptly grow to as much as $40 million, with Andersen alums coming on board and follow-on mergers with smaller firms.

Virchow Krause, which focuses on similar industries, plus schools and financial institutions, estimated revenues for the fiscal year ending May 31 at $121.6 million. With about 850 staffers in offices stretching from Minneapolis to Detroit, it has completed 11 mergers in the last nine years.

KGN was formed in 1976 with the merger of Kupferberg, Goldberg, Borkan & Co. and Neimark, Krause & Noparstak.

Mr. Levin said the firm wasn't considering a merger when Virchow Krause approached it more than a year ago.

The overture led KGN to weigh alternatives, Mr. Koltin said. Several other firms--all larger than Virchow Krause--were considered as potential merger candidates, he said.